Should You Buy Oriental Watch Holdings Limited (HKG:398) For Its Upcoming Dividend?

Oriental Watch Holdings Limited (HKG:398) stock is about to trade ex-dividend in four days. Ex-dividend means that investors that purchase the stock on or after the 8th of December will not receive this dividend, which will be paid on the 23rd of December.

Oriental Watch Holdings's next dividend payment will be HK$0.12 per share. Last year, in total, the company distributed HK$0.25 to shareholders. Calculating the last year's worth of payments shows that Oriental Watch Holdings has a trailing yield of 9.5% on the current share price of HK$2.63. If you buy this business for its dividend, you should have an idea of whether Oriental Watch Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Oriental Watch Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Oriental Watch Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Oriental Watch Holdings is paying out an acceptable 64% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Oriental Watch Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Oriental Watch Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Oriental Watch Holdings has grown its earnings rapidly, up 85% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Oriental Watch Holdings has delivered 18% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Oriental Watch Holdings worth buying for its dividend? We like Oriental Watch Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Oriental Watch Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Oriental Watch Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Oriental Watch Holdings has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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